What Is an Unsecured Credit Card?

Depending on your credit score, it can be a breeze to be approved for credit cards, either personally or for your small business. However, you should know some details about how they work before racking up a balance.

What Is an Unsecured Credit Card?

The most common type of credit card—an unsecured credit card—is one you can start using without putting up any sort of security.

What Does It Mean When a Credit Card Is Secured or Unsecured?

To the average consumer, the idea of an “unsecured credit card” sounds like a negative. However, this nomenclature has nothing to do with cybersecurity or safety. An unsecured credit card is a credit card where the lender does not require the borrower to secure the debt with collateral. Unlike many other forms of loans, you do not need to offer collateral, like a security deposit, house, or car, before receiving funds with an unsecured credit card.

Secured credit cards exist but are not as common. With a secured credit card, you put up a security deposit as collateral before receiving the card. Secured credit cards are sometimes offered to people with limited or poor credit.

How Do Unsecured Credit Card Works?

To get an unsecured credit card, you must apply through a bank, credit union, credit card company, or another lender. Based on your credit history, the lender will decide on your approval status and your annual percentage rate, or APR, which is your interest rate for the year.

Once you receive and activate your card, you’re ready to go. If you don’t pay your credit card balance down during every billing cycle, an interest charge based on your outstanding balance will be added to your balance every cycle.

What Are Interest Rates for Unsecured Credit Cards?

Because you don’t back an unsecured credit card with any collateral, the interest rates are usually higher than most other types of loans or lines of credit. The APR on unsecured credit cards is around 14.6% on average, and you’ll commonly see rates above 20%.

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